A new tax credit can give families up to $2,500 back per student in college.
Millions of students and parents struggling to raise cash for college this fall could have a happy surprise early next year: an extra tax refund of up to $2,500.
The new higher education tax credit, which was part of the stimulus bill signed into law in February, is expected to put hundreds, if not thousands, of extra dollars into the pockets of millions of Americans who write tuition checks this year. Better yet, students don't have to fill out any extra financial aid applications to get the new money. They just file their taxes.
"This will definitely help people," says Jackie Perlman, an analyst for H&R Block's Tax Institute.
Of course, like anything in the federal tax code, the rules are a little complicated. But experts like Perlman say the new credit is bigger and more inclusive than previous higher education tax credits, which were so complicated that more than a quarter of eligible taxpayers failed to get a penny, and those who were able to collect typically got less than $900.
I asked Perlman and other experts to help answer some questions taxpayers will have about the new bonus:
How much can I get?
can get a reduction in your 2009 tax bill of up to $2,500. Even if you don't owe a penny in taxes, you can still get a cash refund of up to $1,000. When can I get the money?
The credit covers only tuition, fee, and book expenses paid in 2009 and 2010. So the soonest you can get the money is in early 2010, after you file your 2009 taxes. Congress might at some point decide to extend the credit beyond 2010. Does every student qualify for the money?
No! The credit is only available for undergraduates who attend college at least half time. And only tax filers with adjusted gross incomes of less than$80,000 a year (if they are single) or $160,000 (if they file jointly) qualify for the full credit. It is phased out for people who earn more than that. Anyone who earns more than $90,000 (or $180,000 for joint filers) won't qualify at all. In addition, the credit covers only tuition, fees, and books. So if you get a scholarship or grant that covers those costs, you can't get the credit, even if you have to spend a lot of money on, say, room and board. Also, students with felony drug convictions are disqualified. How do I get the maximum?